Making more, moving faster: India’s factory moment

India’s manufacturing story in late-2025 is coherent: build at scale, move it cheaply, sell it to more markets. IBEF’s latest industry analysis calls India the third most sought-after manufacturing destination with potential to export US$1 trillion of goods by 2030. This ambition reflects not only the sheer size of India’s domestic market but also its evolving role in global supply chains. The policy spine underpinning this transformation is visible and purposeful—output-linked incentives that reward scale, a logistics push designed to lower time-to-market, and free trade agreements (FTAs) tailored for deep value-chain integration rather than merely tariff reduction theatre. These policy measures are complemented by structural shifts in domestic demand and infrastructure, which together are rewiring India’s manufacturing ecosystem for rapid growth and greater global competitiveness.

A critical enabler in this narrative is the rise of e-commerce, which adds a real-time demand-side intelligence layer to the manufacturing process. In fiscal year 2025, gross merchandise value (GMV) of roughly ₹1.19 lakh crore not only signals the size of the digital retail sector but also provides manufacturers with a live feedback loop for optimizing batch sizes and introducing new product variants. This dynamic feedback mechanism reduces inventory risks and shortens product development cycles, allowing manufacturers to be more responsive to changing consumer preferences. Moreover, the expansion of e-commerce into tier-2 and tier-3 cities is bringing brands closer to previously underserved consumers, expanding the domestic market’s breadth and depth. This geographical diversification of demand also encourages decentralisation of manufacturing, with new plants and clusters emerging outside traditional industrial hubs.

The implementation checklist for India’s manufacturing ambitions is unromantic but actionable. Cluster land assembly—a longstanding bottleneck—must be sequenced with the provision of reliable power supply, a sine qua non for manufacturing competitiveness. Without stable and affordable electricity, factories cannot operate at the scale and efficiency demanded by global buyers. Parallel to this, testing and standards infrastructure require predictable and sustained funding. As India moves from low-value assembly to design-led and quality-sensitive manufacturing—particularly in sectors like electronics, auto components, and renewable energy hardware—the capacity to certify products to international standards becomes a critical export enabler. Testing and certification, often the new export bottlenecks, must be streamlined and scaled to avoid choking promising export opportunities.

In the realm of infrastructure, asset recycling offers a practical source of capital for reinvestment in freight spurs and evacuation corridors. Mature highways and transmission lines that have depreciated but remain operational can be monetised through public-private partnerships or other innovative financing models. The proceeds from such asset recycling should be prioritised to improve connectivity between manufacturing clusters and ports or inland container depots, reducing logistics costs and improving delivery reliability. Efficient freight movement remains a persistent challenge in India, with the World Bank’s Logistics Performance Index ranking placing India at 44th globally in 2023—improved but still trailing many manufacturing powerhouses.

Skilling constitutes another pillar of India’s factory moment, but with a forward-looking twist. Traditional manufacturing skills are now supplemented with training in artificial intelligence for quality control and maintenance analytics. This blend of human expertise and digital tools enables new plants to ramp up faster, reduce downtime, and maintain consistent product quality. The integration of AI-driven predictive maintenance, for example, reduces unplanned outages, increases equipment lifespan, and lowers operational costs. Moreover, as the complexity of products increases, so does the need for a workforce adept at managing sophisticated production processes and quality assurance protocols. Government initiatives such as the Production Linked Incentive (PLI) scheme have incorporated skill development components, encouraging industry-academia collaboration to close the skill gaps.

If the export mix continues shifting from low-value assembly to design-led goods, the implications for India’s position in global value chains are profound. Electronics, auto components, and renewables hardware are sectors where design innovation and quality standards are paramount. The “China-plus-one” strategy that many multinationals have adopted—diversifying production away from overreliance on China—now looks less like a hedge and more like a sustainable business model for India. This transition elevates India from a passive assembly hub to an active innovator and designer within global supply chains. It also demands investments in research and development, intellectual property protection, and enhanced collaboration between Indian firms and global technology partners.

Contextualising India’s manufacturing ascendance requires an understanding of its historical trajectory. For decades, India’s industrial policy oscillated between protective import substitution and gradual liberalisation. Manufacturing’s share in GDP has hovered around 16-17% for years, considerably lower than the 25-30% typical of other emerging economies that successfully industrialised. Structural rigidities such as rigid labour laws, complex land acquisition processes, and fragmented supply chains have stymied growth. However, recent reforms—such as the Goods and Services Tax (GST) unifying the domestic market, labour code rationalisation, and improved ease of doing business rankings—have begun to chip away at these constraints. The “Make in India” initiative, launched in 2014, catalysed policy focus and investor interest but required time to translate into tangible manufacturing output increases.

Statistically, India’s manufacturing output index shows encouraging signs. The Index of Industrial Production (IIP) for manufacturing grew by an average of 6.5% annually between 2020 and 2025, outperforming several other sectors. Specific sub-sectors such as electrical machinery, pharmaceuticals, and automotive components have seen double-digit growth rates. Moreover, foreign direct investment (FDI) inflows into manufacturing have surged, reaching a record US$35 billion in FY2024, reflecting growing confidence among global investors. These capital inflows have supported capacity expansion, technology upgrades, and new product development.

Yet, challenges remain. Infrastructure deficits, especially in power reliability and road-rail connectivity, continue to add to production costs. The cost of logistics in India is estimated at 13-14% of GDP, significantly higher than the global average of around 8-9%, eroding the competitiveness of Indian manufacturers. Additionally, regulatory complexity and bureaucratic delays still deter small and medium enterprises (SMEs) from scaling up. In the realm of standards, India’s testing infrastructure lags behind countries like South Korea and Germany, with limited accredited labs and slow certification processes often delaying exports. Addressing these bottlenecks requires coordinated action across ministries, industry bodies, and state governments.

The policy environment is evolving to meet these challenges. The government’s output-linked incentives (OLI) scheme, which offers financial rewards based on incremental production, is designed to encourage large-scale investments and economies of scale. These incentives are targeted at sectors with strong export potential and technological complexity, such as electric vehicles, advanced electronics, and pharmaceuticals. Complementing OLI, logistics reforms such as the National Logistics Policy aim to simplify documentation, integrate multimodal transport, and digitise freight movement. The recent push towards free trade agreements (FTAs) reflects a strategic shift from tariff bargaining to integrating Indian manufacturers into global value chains. Unlike earlier FTAs that focused primarily on reducing customs duties, new agreements emphasise non-tariff measures, standards harmonisation, and mutual recognition agreements to facilitate smoother cross-border trade.

E-commerce’s role in this ecosystem cannot be overstated. It has not only expanded consumer access but also created a more fragmented and fast-evolving demand landscape. Indian manufacturers, traditionally geared for bulk orders and long production cycles, now face pressure to become agile, producing smaller batches with faster turnaround times. Digital platforms provide data analytics that help predict demand trends and consumer preferences, enabling manufacturers to innovate and customise products. Furthermore, e-commerce firms are investing heavily in last-mile logistics and warehousing, supporting manufacturers’ efforts to reach tier-2 and tier-3 markets. This trend encourages the growth of regional manufacturing hubs closer to emerging consumer markets, reducing lead times and logistics costs.

Looking ahead, the structural transformation of India’s manufacturing sector will have broad implications for the country’s economic trajectory. Scaling manufacturing output to $1 trillion in exports by 2030 would significantly boost employment, especially in semi-skilled and skilled segments. The manufacturing sector’s multiplier effect on ancillary industries—from raw materials to logistics and services—could further stimulate economic growth and formalisation. Moreover, a deeper integration into global value chains would expose Indian firms to international best practices in technology, quality, and management, raising overall productivity.

However, the sector’s success will depend on continuous policy innovation and execution discipline. Land acquisition must be streamlined further, with clear timelines and fair compensation to ease cluster development. Power sector reforms must ensure not only availability but also affordability of energy, especially for energy-intensive industries. Investments in testing and certification infrastructure need to be treated as strategic national assets, with a focus on international accreditation and digitalisation of processes. The development of human capital must keep pace with technological advancements, necessitating enhanced collaboration between industry, government, and educational institutions to build a workforce capable of operating in increasingly automated and AI-driven environments.

In conclusion, India’s factory moment is both a reflection of long-term structural reforms and a response to shifting global economic realities. The confluence of policy incentives, infrastructure investment, skilling initiatives, and digital transformation is positioning India as a formidable player in the global manufacturing arena. While challenges remain, the coherence of the strategy and the momentum already built suggest that India’s manufacturing sector is poised not just to grow but to reshape the country’s economic future. As India moves beyond the “China-plus-one” narrative towards becoming a design-led manufacturing powerhouse, the coming decade could witness a fundamental reordering of the global manufacturing landscape, with India playing a central role.